CALIFORNIA APPEAL DECISION Anolik_vs_EMC - THE NOTICE OF DEFAULT IS VOID IF THE TERM 'IF ANY' IS...

8/3/2019 CALIFORNIA APPEAL DECISION Anolik_vs_EMC - THE NOTICE OF DEFAULT IS VOID IF THE TERM 'IF ANY' IS USED

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Filed 4/29/05

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

----

JERRY I ANOLIK,

Plaintiff and Appellant,

v.

EMC MORTGAGE CORP. et al.,

Defendants and Respondents.

C044201

(Super. Ct. No.

00AS06473)

APPEAL from a judgment of the Superior Court of Sacramento

County, Loren E. McMaster and Raymond M. Cadei, Judges.Reversed with directions.

Robert R. Schaldach for Plaintiff and Appellant.

Wright, Finlay & Zak and Steven K. Linkon for Defendant and

Respondent.

This case arises out of an attempt by defendant EMC

Mortgage Corporation (EMC) to foreclose nonjudicially on the

* Pursuant to California Rules of Court, rule 976.1, this

opinion is certified for publication with the exception of part

I of the Discussion.


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deed of trust securing the loan plaintiff Jerry Anolik used to

purchase his home. Anolik sued EMC to enjoin the foreclosure

sale, to have the notice of default declared void, for damages,

and for an accounting.1 Following trial, the court found against

Anolik and awarded EMC more than $83,000 in attorney fees.

On appeal, Anolik contends: (1) the trial court erred in

denying him leave to amend to file a third amended complaint;

(2) the trial court erred in determining the notice of default

was valid; and (3) the trial court erred in failing to address

the application of the Fair Debt Collection Practices Act.2

In the unpublished portions of our opinion, we conclude the

trial court did not abuse its discretion in denying Anolik leave

to amend his complaint and did not err in failing to address the

application of the Fair Debt Collection Practices Act. In the

published portion of our opinion, we conclude the court diderr

in determining the notice of default was valid. Accordingly, we

will reverse the judgment and the award of attorney fees and

remand the case for further proceedings.

1 Anolik also sued EMCs agent in the nonjudicial

foreclosure, Wolf & Richards, a law corporation. We will refer

to both defendants jointly as EMC.

2 Title 15 United States Code section 1601 et seq.

Judge McMaster made the ruling on Anoliks motion for leave

to amend before trial; Judge Cadei served as the trial judge.


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FACTUAL AND PROCEDURAL BACKGROUND

In July 1998, Anolik purchased a home in Fair Oaks with the

proceeds of a loan from Long Beach Mortgage Company. Repayment

of the loan was secured by a deed of trust on the property (the

Deed of Trust). Under the promissory note (the Note), Anolik

agreed to make monthly payments of principal and interest in the

initial amount of $900.58.

In June 1999, Long Beach transferred the loan to EMC. On

July 6, 2000, EMC recorded a notice of default and election to

sell under deed of trust (the Notice of Default). The Notice of

Default asserted that a breach of, and default in, the

obligations for which [the] Deed of Trust is security has

occurred in that payment has not been made of: [] THE

INSTALLMENT OF PRINCIPAL AND INTEREST WHICH BECAME DUE ON

03/01/2000 AND ALL SUBSEQUENT INSTALLMENTS, TOGETHER WITH LATE

CHARGES AS SET FORTH IN SAID NOTE AND DEED OF TRUST, ADVANCES,

ASSESSMENTS AND ATTORNEYS FEES, IF ANY.

Disputing the validity of defaults alleged in the Notice of

Default, Anolik filed this action against EMC in November 2000,

seeking: (1) to enjoin the foreclosure sale; (2) to have the

Notice of Default declared void; (3) damages; and (4) an

accounting. The trial court temporarily restrained EMC from

conducting the foreclosure sale and subsequently issued a

preliminary injunction restraining the sale during the pendency

of the action.


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In June 2002, Anolik sought leave to file a third amended

complaint, but the court denied his motion. Thus, the case came

on for trial in December 2002 on the second amended complaint.

That complaint contained 11 causes of action, two of which (the

eighth and eleventh causes of action) had been summarily

adjudicated in favor of EMC before trial, leaving nine. The

parties agreed to bifurcate the trial on the second, third, and

fourth causes of action, which each sought declaratory relief.

As the court later noted in its statement of decision, the

Court granted the Motion to Bifurcate in order to resolve the

question of the validity of the Notice of Default.3

Following a court trial and further briefing, the trial

court issued an order denying Anoliks request for a declaration

that the Notice of Default was invalid or void. The court

3 The second cause of action was framed as one for

declaratory relief relating to the Note and related only to the

imposition of late charges. That cause of action was later

rendered moot when EMC agreed to drop any claims for late

charges.

The third cause of action was framed as one for declaratory

relief relating to various rights and obligations under the Deed

of Trust.

The fourth cause of action, framed as one for wrongfulforeclosure, was the one that sought a judgment determining the

Notice of Default was void because the events of default

asserted in the Notice of Default were false.

The fifth cause of action was framed as one for damages for

wrongful foreclosure, and the trial court stated it was

bifurcating as to that cause of action also to the extent that

there [wa]s an overlap with the other three causes of action.


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concluded that because Anolik was in default when the [Notice

of Default] was sent, the Notice of Default was . . . properly

sent and is not invalid or void because it may have incorrectly

stated the amounts owing.

A court trial on the remaining issues began in February

2003. Anolik voluntarily dismissed the ninth cause of action,

and the second cause of action was rendered moot when EMC agreed

to drop any claims for late charges. On the seventh cause of

action for an accounting, the parties reached agreement as to

the amount of money necessary for Anolik to either pay off the

loan or reinstate the loan at that time, exclusive of any

attorney fees, which had yet to be determined. That left

Anoliks three causes of action for damages: the fifth cause of

action for wrongful foreclosure, the sixth cause of action for

breach of the covenant of good faith and fair dealing, and the

tenth cause of action for false credit reporting.

Following further court trial on those causes of action,

the court issued its statement of decision and judgment in April

2003. The court reiterated its earlier ruling that the Notice

of Default was not void or invalid, addressed the requests for

declaratory relief contained in the fourth cause of action, then

rejected Anoliks causes of action for damages. On the fifth

cause of action, the court noted it was moot because no

foreclosure sale occurred and that [e]ven if [it] were read to

be [a cause of action] for damages for wrongful commencingthe

foreclosure sale, [it] would be without merit because Anolik

was in default under the Note and this default justified EMCs


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commencement of the foreclosure process by issuing the Notice

of Default. On the sixth cause of action, the court concluded

no damages were proven and Anolik failed completely to

present any evidence on the causation issue in that there was no

evidence to show any conduct of [EMC], much less the several

letters, had any appreciable effect on Anoliks ability to

obtain other loans or to lease commercial property. Similarly,

on the tenth cause of action, the court reiterated that Anolik

failed to present any evidence of causation as to the claimed

damages.

Following the entry of judgment, EMC moved for an award of

attorney fees under the Note and the Deed of Trust as the

prevailing party in the action. The trial court granted EMCs

motion at a hearing on June 6, 2003, and entered a formal order

on June 30, 2003, awarding EMC $83,806 in attorney fees.

On June 4, 2003, Anolik filed a timely notice of appeal

from the judgment entered on April 23, 2003. On June 16, 2003,

Anolik filed a premature notice of appeal from the order

awarding attorney fees to EMC.4 We will exercise our discretion

to treat Anoliks premature notice of appeal from the attorney

fees order as a timely notice of appeal. (See Cal. Rules of

Court, rule 2(e).)

4 For a reason unexplained on this record, Anolik asserted in

his notice of appeal that the attorney fees order was entered

on or about June 13, 2003.


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DISCUSSION

I

Denial Of Leave To Amend

In his original complaint, filed on November 22, 2000,

Anolik asserted a cause of action for intentional interference

with contract based on allegations that in March 2000 he tried

to refinance his home loan through Integrity Mortgage Company

but EMC interfered with that contract. Anolik repeated this

cause of action in his first amended complaint, filed in January

2002, and in his second amended complaint, filed in March 2002.

EMC filed a motion for summary adjudication that

encompassed the cause of action involving Integrity Mortgage.

In support of that motion, EMC offered Anoliks admission during

discovery that he never had an agreement with Integrity Mortgage

to refinance his home loan. In response, Anolik offered no

opposition to the summary adjudication of that cause of action.

Accordingly, in April 2002, the trial court entered a formal

order summarily adjudicating the interference with contract

cause of action against Anolik.

Trial in the matter was originally set for July 8, 2002.

On Anoliks motion in May 2002, the trial was continued to

August 19, 2002.

In June 2002, Anolik sought leave to file a third amended

complaint. He wanted to add a new cause of action for

intentional interference with contract that was essentially the

same as the previous cause of action on that theory, except that

the new cause of action involved an attempted refinance with New


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Century Mortgage Company, instead of Integrity Mortgage. In his

memorandum of points and authorities, Anolik asserted that he

discovered the attempted refinance was with New Century

Mortgage, rather than Integrity Mortgage, when he located a box

of records under a desk which supports his fax machine.

EMC opposed Anoliks motion on the grounds that discovery

is closed and the trial date is six weeks away and that Anolik

had offered no evidence of a good reason for the tardy

amendment.

At a hearing on July 9, 2002, the trial court denied Anolik

leave to further amend his complaint, stating: This is not

merely the same legal theory. It involves a different

contractual relationship, different documents, and obviously

different conduct by EMC and New Century. [Anolik] has no

adequate explanation for the recent discovery of the documents.

(Health and memory are not an adequate excuse.) Regardless of

when he discovered the documents, he is charged with knowledge

of the existence of his contractual relationships. He has known

for at least 18 months of the alleged interference by EMC,

whether with the Integrity refinancing agreement or the New

Century refinancing agreement. [] The trial date is set for

August 19. Discovery related to the New Century refinancing

agreement will be necessary. [Anolik] has been dilatory. The

proximity of the trial date means additional discovery will be

required five weeks before trial when the parties should be

making their final preparations for trial.


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Anolik contends the trial court erred in denying him leave

to file his third amended complaint. We disagree.

We review the trial courts decision to deny [Anolik]

leave to amend his complaint for abuse of discretion. (Levy v.

Skywalker Sound(2003) 108 Cal.App.4th 753, 770.) Discretion

is abused whenever, in its exercise, the court exceeds the

bounds of reason, all of the circumstances before it being

considered. The burden is on the party complaining to establish

an abuse of discretion, and unless a clear case of abuse is

shown and unless there has been a miscarriage of justice a

reviewing court will not substitute its opinion and thereby

divest the trial court of its discretionary power. (Denham v.

Superior Court (1970) 2 Cal.3d 557, 566, quoting Loomis v.

Loomis (1960) 181 Cal.App.2d 345, 348-349.)

Although courts are bound to apply a policy of great

liberality in permitting amendments to the complaint at any

stage of the proceedings, up to and including trial [citations],

this policy should be applied only [w]here no prejudice is

shown to the adverse party . . . . [Citation.] A different

result is indicated [w]here inexcusable delay and probable

prejudice to the opposing party is shown. (Magpali v. Farmers

Group, Inc. (1996) 48 Cal.App.4th 471, 487.)

Here, Anolik offered no explanation for why he did not know

in November 2000, when he filed his original complaint, the name

of the mortgage company through which he had tried to refinance

his home loan eight months earlier. Nor did he adequately

explain why it took him over a year and a half -- until after


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his original intentional interference cause of action was

adjudicated against him -- to determine it was New Century

Mortgage, rather than Integrity Mortgage. Thus, the trial court

acted well within its discretion in determining Anolik had been

dilatory in seeking to amend in his complaint to identify the

other party to the contract he contended EMC interfered with.

Likewise, the trial court acted well within its discretion

in determining that EMC would be prejudiced by Anoliks delay

because additional discovery [would] be required five weeks

before trial when the parties should be making their final

preparations for trial. Anoliks willingness to extend

discovery did not necessarily obviate the prejudice from

Anoliks delay. Furthermore, this was a case in which EMC had

been seeking to exercise the power of sale in a deed of trust

based on Anoliks breach of obligations secured by that deed of

trust, and Anoliks lawsuit had prevented EMC from doing so for

two years. The trial court was not obliged to sanction further

delay because Anolik failed to make an adequate investigation of

his claims both before and after filing his action. There was

no abuse of discretion.

II

Validity Of Notice Of Default

EMC sought to exercise the power of sale in the Deed of

Trust on Anoliks home based on Anoliks alleged breach of

various obligations secured by the Deed of Trust. Anolik

alleged in the fourth cause of action in his second amended

complaint (for wrongful foreclosure) that the events of default


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as alleged . . . in the Notice of Default . . . [we]re false and

untrue and that the Notice of Default and Election to Sell

[wa]s void as a result.

The trial court concluded the Notice of Default was proper

and is not invalid or void. Anolik contends the trial court

erred in this conclusion. We agree.

The procedure for foreclosing on security by a trustees

sale pursuant to a deed of trust is set forth in Civil Code

section 2924 et seq.5 (Miller v. Cote (1982) 127 Cal.App.3d

888, 894.) Because nonjudicial foreclosure is a drastic

sanction and a draconian remedy (Baypoint Mortgage Corp. v.

Crest Premium Real Estate etc. Trust (1985) 168 Cal.App.3d 818,

827, 830), [t]he statutory requirements must be strictly

complied with. (Miller,at p. 894.)

Under section 2924, a power of sale in a deed of trust

shall not be exercised until a notice of default is recorded

identifying the . . . deed of trust . . . and containing a

statement that a breach of the obligation for which the . . .

transfer in trust is security has occurred, and setting forth

the nature of each breach actually known to the beneficiary and

of his or her election to sell or cause to be sold the property

to satisfy that obligation and any other obligation secured by

the deed of trust . . . that is in default . . . .

5 All further statutory references are to the Civil Code

unless otherwise indicated.


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The provisions of section 2924 . . . with reference to

inclusion, in the notice of default, of a statement setting

forth the nature of the breach must be strictly followed.

[Citation.] The person relying upon the notice of default is

bound by its provisions, and cannot insist upon any grounds

of default other than those stated in that notice. (System

Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-153; see

also Hayward Lbr. & Invest. Co. v. Corbett (1934) 138 Cal.App.

644, 650 [person recording notice of default is powerless to

insist upon . . . grounds for default other than those

described in the notice].)

[T]he intent of [section 2924] is sufficiently complied

with if the notice of default contains a correct statement of

some breach or breaches sufficiently substantial in their nature

to authorize the trustee or beneficiary to declare a default and

proceed with a foreclosure. (Birkhofer v. Krumm (1938) 27

Cal.App.2d 513, 523-524.) [E]rroneous statements [that] may

appear in the notice about other breaches . . . may properly be

treated as immaterial. (Id. at p. 524.) Moreover, the

failure to include an actually known default shall not

invalidate the notice of sale and the beneficiary shall not be

precluded from asserting a claim to this omitted default or

defaults in a separate notice of default. ( 2924.)

From the foregoing authorities, we distill the following

rule: To be valid, a notice of default must contain at least

one correct statement of a breach of an obligation the deed of

trust secures. Moreover, the breach described in the notice of


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default must be substantial enough to authorize use of the

drastic remedy of nonjudicial foreclosure. If a notice of

default does not satisfy these requirements, then the notice is

invalid and the lender cannot exercise the power of sale based

on that notice. As we will explain, that is the case here.

The Notice of Default here was signed on July 5, 2000, and

recorded the next day. It asserted that Anoliks past due

payments plus permitted costs and expenses totaled $7,049.06 as

of July 5, 2000. It further asserted that a breach of, and

default in, the obligations for which [the] Deed of Trust is

security has occurred in that payment has not been made of: []

THE INSTALLMENT OF PRINCIPAL AND INTEREST WHICH BECAME DUE ON




EMC contends the Notice of Default was valid because EMC

demonstrated at the trial that the amount in default listed in

the [Notice of Default], $7,049.06 as of July 5, 2000, was in

fact accurate. This argument fails because section 2924 does

not even require a statement of the amounts which are in

default. (Middlebrook-Anderson Co. v. Southwest Sav. & Loan

Assn. (1971) 18 Cal.App.3d 1023, 1038.) What the statute

requires is a statement setting forth the nature of each breach

actually known to the beneficiary. ( 2924.) Thus, in

determining whether the Notice of Default was valid, we address

ourselves to the nature of the breaches described in the Notice

of Default -- that is, Anoliks alleged failure to pay THE


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INSTALLMENT OF PRINCIPAL AND INTEREST WHICH BECAME DUE ON




We begin with the validity of the latter part of the

assertion of breach -- the phrase that begins with the words

TOGETHER WITH. In effect, this part of the Notice of Default

asserted payment ha[d] not been made of [] . . . [] LATE



The first question is whether the words IF ANY were

intended to modify only the immediately preceding phrase

(ATTORNEYS FEES) or instead were intended to modify all four

items that precede those words in the phrase beginning with

TOGETHER WITH: that is, (1) LATE CHARGES AS SET FORTH IN

SAID NOTE AND DEED OF TRUST, (2) ADVANCES, (3) ASSESSMENTS,

and (4) ATTORNEYS FEES.

It is an established rule of statutory construction that

a limiting clause is to be confined to the last antecedent,

unless the context or the evident meaning of the statute

requires a different construction. (Elbert, Ltd. v. Gross

(1953) 41 Cal.2d 322, 326-327.) Applying that rule to the

interpretation of the Notice of Default,6 we conclude the context

6 We recognize the Notice of Default is not a statute, but

there is no reason to limit this interpretive rule to statutes.

The rule is essentially a rule of grammar that can be applied


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here requires a different construction. The assertion of breach

in the Notice of Default begins with the assertion of a specific

breach: the failure to pay THE INSTALLMENT OF PRINCIPAL AND

INTEREST WHICH BECAME DUE ON 03/01/2000 AND ALL SUBSEQUENT

INSTALLMENTS. The words TOGETHER WITH then introduce a list

of four other, more generally described breaches: the failure

to pay: (1) LATE CHARGES AS SET FORTH IN SAID NOTE AND DEED OF

TRUST, (2) ADVANCES, (3) ASSESSMENTS, and (4) ATTORNEYS

FEES. The words IF ANY follow this list. Given this

division of the assertion of breach into one specific breach and

four general breaches, it reasonably follows that the words IF

ANY were intended to modify all four of the generally described

breaches, rather than simply the last of the four.

This leads us to the question of whether a notice of

default that qualifies an assertion of one or more breaches with

the words if any satisfies the requirements of section 2924.

It does not.

Section 2924 requires a notice of default to set[] forth

the nature of each breach actually known to the beneficiary.

( 2924, italics added.) As this court explained in Anderson v.

Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202,

[a]dding the qualifier if any . . . to an assertion of

default indicates the party claiming default has no knowledge of

the truth or falsity of the assertion. (Id. at p. 213.) The

with equal validity to determine the intended meaning of any

writing, be it a statute or a notice of default.


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purpose [of requiring a notice of default to identify what

breach has occurred] is to put the beneficiary to the task of

ascertaining the existence of a breach before the invocation of

the power of sale and the trustor on notice of the obligations

the beneficiary contends have been breached. An assertion of a

breach if any utterly fails those purposes. (Id. at p. 214.)

By asserting that Anoliks breach included the failure to

pay late charges, advances, assessments, and attorney fees, IF

ANY, EMC did not describe a breach actually known to EMC.

Therefore, the latter part of the assertion of breach in the

Notice of Default was invalid.

After this court decided Anderson, the Legislature amended

sections 2924 and 2924c (which relates to curing a default

described in a notice of default). (Stats. 1990, ch. 657.) In

doing so, the Legislature specifically stated its intent was to

supersede the holding in [Anderson] to the extent that decision

restricted the ability of mortgagees and beneficiaries under

trust deeds to demand payment of all amounts in default under

the terms of an obligation secured by a mortgage or deed of

trust as a condition to reinstatement of the obligation and

avoidance of a sale of the security property to satisfy the

obligation. (Stats. 1990, ch. 657, 3, p. 3159.) Having

examined the 1990 revisions to sections 2924 and 2924c, we

conclude the Legislatures intent to supersede Anderson related

to other portions of Anderson that involved section 2924c, on

which we do not rely. (See Anderson v. Heart Federal Sav. &

Loan Assn., supra, 208 Cal.App.3d at pp. 215-217.) Indeed, by


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adding the words actually known to section 2924 as part of the

1990 amendments, the Legislature actually bolstered Andersons

conclusion that an if any proviso in a notice of default is

invalid.

That leaves us with the assertion that Anolik failed to pay


03/01/2000 AND ALL SUBSEQUENT INSTALLMENTS. Anolik contends

this assertion must be read as the alleged non-payment of

monthly promissory note payments for the months of March, 2000;

April, 2000; May, 2000; and June, 2000. This contention

appears to be premised on the fact that although the Note

required him to make [his] monthly payments on the first day of

each month, a late charge could be imposed only if the holder

of the Note did not receive the full amount of any monthly

payment by the end of FIFTEEN calendar days after the date it is

due. Since the Notice of Default was signed on July 5 and

recorded on July 6 -- before any late charge could be imposed

for the July payment -- Anolik contends the phrase ALL

SUBSEQUENT INSTALLMENTS applies only to the installments due in

April, May, and June.

This conclusion does not follow from the terms of the Note.

As we have observed, the Note required Anolik to make [his]

monthly payments on the first day of each month. The Note also

specified that if Anolik did not pay the full amount of each

monthly payment on the date it [wa]s due, [he would] be in

default. Finally, under the late charge provision in the Note,

a late charge would be imposed if the holder of the Note did not


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receive the full amount of any monthly payment by the end of

FIFTEEN calendar days after the date it is due -- i.e., after

the first of the month. (Italics added.)

Read together, these provisions provide that Anolik would

be in default with respect to any monthly payment that he did

not pay by the first of the month -- i.e., the date it was due

-- regardless of when the Note holder received the payment.

Thus, Anoliks failure to pay the Julypayment on the first of

July constituted a default encompassed by the assertion, made on

July 5, that Anolik had failed to pay THE INSTALLMENT OF

PRINCIPAL AND INTEREST WHICH BECAME DUE ON 03/01/2000 AND ALL

SUBSEQUENT INSTALLMENTS.7

Despite this conclusion, we can quickly dispose of any

suggestion that the Notice of Default properly could be premised

on Anoliks admitted failure to make the July 2000 payment. In

Bisno v. Sax(1959) 175 Cal.App.2d 714, the court concluded one

days delay in making [a monthly loan] payment did not effect a

default, for time is not declared by the note or trust deed to

be of the essence. (Id. at p. 721.) The court went on to

explain: The note and trust deed now before us evince an

intent that time shall not be of the essence. No action other

than foreclosure can be brought upon a trust deed note

[citations], and both of these instruments contemplate a

foreclosure in the customary manner--sale under the power

7 In a letter to EMC dated August 11, 2000, Anoliks attorney

noted the July 2000 payment as one that was unpaid.


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conferred upon the trustee. This means the recordation of a

notice of default and a waiting period of three months

[citation], during which the trustor may cure his default and

reinstate the obligation and deed of trust, thus necessitating

the discontinuance of any proceeding looking to a foreclosure

sale [citation]. All this is irreconcilable with any concept of

time as the essence. (Id. at p. 722; see also Baypoint

Mortgage Corp. v. Crest Premium Real Estate etc. Trust, supra,

168 Cal.App.3d at pp. 821, 825-831 [borrower was likely to

succeed on the merits of an action seeking to enjoin foreclosure

on several deeds of trust based on tardy payment of an

installment during the period before late payment charges

accrue].)

Here, at the time the Notice of Default was prepared on

July 5, the July payment was at most four days late -- not even

late enough for EMC to impose a late charge on Anolik. Under

the reasoning of Bisno, Anoliks failure to make the July

payment by the fifth of the month did not constitute a breach of

his obligations under the Note and Deed of Trust sufficiently

substantial in [its] nature to authorize [EMC] to declare a

default and proceed with a foreclosure. (Birkhofer v. Krumm,

supra, 27 Cal.App.2d at pp. 523-524.)

Thus, to determine the validity of the Notice of Default,

we must examine whether Anolik failed to pay any of the four

monthly installments that became due between March, April, May,

and June 2000. We must first determine the amount of THE


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INSTALLMENT[S] OF PRINCIPAL AND INTEREST Anolik was obligated

to pay during those months.

The Note provided that [e]ach of [Anoliks] monthly

payments w[ould] be in the amount of U.S. $ 900.58, but the

Note also provided that this amount could change. EMC contends

it increased Anoliks monthly payment commencing with the

payment due January 1, 2000 to recover the tax payments it

[had] advanced. At trial, Annette Anderson, a senior

litigation specialist with EMC, testified that EMC increased the

amount of Anoliks monthly installment payment to $995.14

effective December 1, 1999, because of a property tax payment

EMC had made on Anoliks behalf in October 1999. Anderson

testified that to recover the tax payment it had advanced, EMC

forced an escrow account (also referred to an impound account)

on Anolik and treated the tax payment as an impound advance

amount. Thus, beginning in December 1999, EMC sought to

collect an additional $59.04 every month to cover this impound

advance and an additional $35.52 per month to cover future tax

payments.

Anolik admits he never paid the increased monthly payment

EMC sought to collect. He contends, however, that EMC had no

authority to force an impound account on him and therefore no

authority to increase the amount of his monthly payment. In

support of this contention, he cites section 2954, which

provides in relevant part: (a) No impound, trust or other type

of account for payment of taxes on the property . . . shall be

required as a condition of . . . a loan secured by a deed of


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trust . . . on real property containing only a single-family,

owner-occupied dwelling, except: . . . (3) upon a failure of the

. . . borrower to pay two consecutive tax installments on the

property prior to the delinquency date for such payments . . . .

[] An impound, trust, or other type of account for the payment

of taxes, insurance premiums or other purposes relating to

property established in violation of this subdivision is

voidable, at the option of the . . . borrower, at any

time . . . . (Italics added.)

Anolik argues that under section 2954, [t]he payment of a

single tax bill does not authorize a lender to establish an

involuntary escrow impound account. We agree. EMC offers no

argument on this point. Thus, regardless of whether EMC could,

under the terms of the Note or the Deed of Trust, force an

impound account on Anolik,8 section 2954 prohibited EMC from

doing so based on Anoliks failure to make a single tax payment.

EMC argues it was entitled to establish an impound account

because Anolik signed an agreement authorizing such an account

when he purchased the property. It is true Anolik signed an

ESCROW ACCOUNT AGREEMENT for TAX & INSURANCE with Long Beach

Mortgage Company as part of the original loan transaction. That

agreement, however, specified the impound account was not

required and further specified that Anolik could cancel it at

any time. At trial, Anolik testified that he changed his mind

8 The parties disagree on this point.


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about the impound account before the loan closed, he canceled

the agreement, and an impound account was never established.

This testimony was consistent with evidence that upon the

closing of the loan, no money was withheld to fund an impound

account and no impound account was ever set up until EMC tried

to force an impound account on Anolik. Indeed, Anderson

admitted that the loan came to EMC from Long Beach as a non-

escrowed loan.

It follows from the foregoing that EMC had no authority to

increase Anoliks monthly payment effective December 1, 1999, so

that Anolik would pay additional amounts into a forced impound

account to allow EMC to recover the taxes it had advanced for

Anolik.9 Thus, the amount Anolik owed for his monthly

installment payment in March, April, May, and June 2000 was the

amount originally specified in the Note: $900.58.

9 Under the Deed of Trust, EMC was entitled to pay Anoliks

property taxes if he failed to do so. With respect to the

recovery of such advances, however, the Deed of Trust provided:

Any amounts disbursed by Lender . . . shall become additional

debt of Borrower secured by this Security Instrument. Unless

Borrower and Lender agree to other terms of payment, these

amounts shall bear interest from the date of disbursement at the

Note rate and shall be payable, with interest, upon notice from

the Lender to Borrower requesting payment. No such notice was

tendered here, and, more importantly, the Notice of Default did

not identify the failure to pay this advance as a specific

default for which EMC sought to exercise its power of sale.


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We turn to the issue of whether Anolik failed to pay any of

those installments. At trial, the evidence showed that Anoliks

monthly installment payments for those four months in the amount

of $900.58 were sent to EMC by Anoliks attorney, along with

cover letters specifically identifying the payments as the

March, 2000 monthly loan payment, the April, 2000 monthly loan

payment, etc. EMC accepted the installment payments for March

and April, but rejected the installment payments for May and

June.

EMC contends that despite its receipt of the March, April,

May, and June 2000 payments, Anolik was actually in default on

all four of these installments. EMCs argument is premised on

the reasoning that follows.

It was undisputed at trial that Anolik failed to make the

monthly installment payment due in December 1998, before the

loan was transferred to EMC. According to Anderson, because of

this missed payment the account continuously ran one month in

arrears. That means EMC treated each payment received after

December 1998 as paying the previous months installment. Thus,

when EMC received the February 2000 payment, EMC treated that

payment as the January 2000 payment instead and deemed the

February 2000 payment unpaid. When EMC decided to apply

Anoliks March 2000 payment to repay the taxes advanced by

EMC, this made the account two months in arrears. In other

words, in EMCs view, Anolik was in default for failing to pay

the February and March 2000 installments -- because the February

2000 payment Anolik made was applied to the January 2000


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installment and the March 2000 payment Anolik made was applied

to repay the taxes EMC had advanced.

When EMC received Anoliks April 2000 payment, it applied

that payment to the February 2000 installment. At that point,

EMC considered Anolik to be in default for failing to pay the

March and April 2000 payments.

As for the May and June 2000 payments, EMC rejected them on

the ground they were for the [i]ncorrect amount compared to

[the] amount due. At trial, Anderson explained they were

returned because they were insufficient to cure the default

amount. Because EMC did not accept the May and June 2000

payments, EMC treated those payments as being unpaid also.

Thus, according to EMC, Anolik was in default because he failed

to make the March, April, May, and June 2000 payments due under

the loan.

EMC contends that it does not matter how it applied

Anoliks payments during those months because Anolik admitted

that he failed to pay sufficient amounts to bring the Loan

current and [h]ad EMC applied the payments received from

Anolik as he directed the Loan would nonetheless still have been

in default. According to EMC, Had EMC not applied the March

payment made by Anolik to reimburse the amount of taxes

previously advanced, Anolik would have been in default by 1

monthly payment and $1,425.19 in taxes. By applying the March

payment to taxes, Anolik was in default by 2 monthly payments,

and only $551.61 in taxes. Applying a payment towards taxes, or


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not makes no difference in that either way Anolik was in default

under the Loan.

The fatal flaw in that argument is this: The issue before

us is not simply whether Anolik was in default under the loan;

he admittedly was, because he failed to make the December 1998

monthly installment payment and failed to pay the property taxes

that were due in October 1999. The issue before us is whether

Anolik was in default under the loan in the manner EMC specified

in the Notice of Default. Under section 2924 and the cases

applying that statute, EMC had to correctly identify in the

Notice of Default at least one breach by Anolik of his

obligations under the Note and the Deed of Trust. If Anolik did

not commit any of the specific breaches that EMC asserted in its

Notice of Default, then that notice was invalid under section

2924 -- even if Anolik was in breach of his obligations in other

ways EMC failed to specify.

Thus, it is of critical importance how EMC applied Anoliks

payments in determining whether Anolik was in breach of his

obligations as specified in the Notice of Default. If Anolik

was in breach because he failed to pay the taxes EMC advanced on

his behalf in October 1999, Anoliks breach could not properly

be described as his failure to make the March 2000 payment of

principal and interest, unless there was some provision in the

Note or the Deed of Trust that expressly allowed EMC to treat

Anoliks March 2000 loan payment of principal and interest as a

payment of the taxes EMC had previously advanced for Anolik.

There is no such provision, however. Paragraph 3 of the Deed of


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Trust, which is entitled Application of Payments, specifies

that any payment of principal and interest, and any payment

toward an impound account, shall be applied: first, to any

prepayment charges due under the Note; second, to amounts

payable [to an impound account]; third, to interest due; fourth,

to principal due; and last, to any late charges due under the

Note. We have already concluded that EMC was not entitled to

force an impound account on Anolik when it tried to do so, and

therefore EMC was not entitled to apply Anoliks March 2000

payment of principal and interest toward any tax advances that

EMC was treating as an impound advance amount.

Nor was EMC entitled to apply Anoliks March 2000 payment

of principal and interest directly toward the taxes it had

advanced for Anolik. Paragraph 3 of the Deed of Trust does not

permit the lender to directly apply such a payment toward a tax

advancement the lender has made for the borrower. Instead, as

we have previously explained, the Deed of Trust provides for the

lender to recover any tax advancement it has made by requesting

that the borrower pay the lender the amount of the advancement.

The advancement becomes payable by the borrower upon notice

from the Lender to Borrower requesting payment.10

10 If, following that notice, the borrower fails to pay the

lender the amount of the advancement, then the borrower is in

default for failing to do so.


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It follows from the foregoing that EMC had no right to

treat Anoliks March 2000 payment as anything other than a

payment of principal and interest. The issue that remains is

whether, because Anolik failed to make his monthly payment in

December 1998, EMC was entitled to treat each of Anoliks

subsequent monthly loan payments as one month late, leaving

Anolik perpetually in default for failing to pay the most recent

monthly installment. If EMC was entitled to do this, then EMCs

description of Anoliks breach in its Notice of Default was at

least partly correct because Anolik was always a month behind on

his payments and therefore in any given month could be described

as being in default for having failed to make the payment due

the previous month.

Under the Note, Anolik was obligated to make a payment of

principal and interest every month in the amount of $900.58.

Anolik admits he breached that obligation in December 1998 when

he failed to make a payment for that month. Thereafter,

however, Anolik made a payment every month between January 1999

and June 2000. From Anoliks perspective, under these

circumstances, his breach was his failure to make the December

1998 payment, and therefore EMCs assertion in the Notice of

Default that he did not pay THE INSTALLMENT OF PRINCIPAL AND

INTEREST WHICH BECAME DUE ON 03/01/2000 AND ALL SUBSEQUENT

INSTALLMENTS was inaccurate.


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In EMCs view, however, it was entitled to treat each

payment Anolik made after December 1998 as one month late.

Thus, EMC contends it was entitled to treat the payment Anolik

made in January 1999 as a belated payment for December 1998, and

so on through June 2000. Under this reasoning, even if Anolik

is credited with having made the payments in May and June 2000

that EMC refused to accept, as of July 5, 2000, Anolik had

failed to make the installment payment due on June 1, and

therefore the Notice of Default was valid because it accurately

described a breach by Anolik of his obligations under the Note.

If Anolik had sent each monthly payment to EMC without

designating the purpose of that payment, EMCs view might

prevail. In other words, if EMC received a check for $900.58

from Anolik in March 2000 without any indication as to what that

check was for, EMC reasonably could have treated that check as a

belated payment of the installment due in February 2000, having

treated each payment since January 1999 in the same manner. But

the evidence showed that at least as far back as August 1999,

Anoliks attorney sent each monthly installment payment to EMC

with a cover letter identifying the purpose of the payment.

Thus, in August 1999, when -- by EMCs accounting -- Anolik was

in default for failing to make the July 1999 payment, EMC

received a check for $900.58 from Anolik designated as payment

of the August, 1999 monthly loan payment. The question is

whether EMC was entitled to ignore Anoliks specification of the

nature of the payment he was making.


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Under section 1479, [w]here a debtor, under several

obligations to another, does an act, by way of performance . . .

which is equally applicable to two or more of such obligations,

such performance must be applied to the extinction of any

particular obligation designated by the debtor at the time of

performance. In Smith v. Renz (1954) 122 Cal.App.2d 535 --

which, like this case, involved installment payments due under a

promissory note -- the court explained that although

installment obligations are not specifically mentioned in

section 1479, the statute nonetheless may be deemed to bespeak

such public or legislative policy as may exist on the point of

how installment payments are to be credited. (Smith v. Renz,

supra, 122 Cal.App.2d at pp. 536, 538.) According to the court,

[w]hen payment is made on an obligation, unless there is some

indication to the contrary, the practical and ordinary

interpretation must undoubtedly be that payment is to be applied

to the part first coming due to be paid. (Ibid., first italics

original, second italics added.)

Thus, absent any contrary designation by Anolik, EMC would

have been entitled to treat the payment it received in August

1999 as a belated performance of Anoliks obligation to make a

payment in July 1999. Anolik specified, however, that the check

EMC received in August was his performance of his obligation to

make an installment payment in August, and there is nothing in

the Note or the Deed of Trust that precluded Anolik from

identifying which months payment he was making. Thus, even

accepting EMCs method of accounting for payments, as of August


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1999 Anoliks breach became fixed and did not change with each

new month.

EMC offers no basis for its position that it was entitled

to ignore Anoliks specification of the particular installment

he intended to pay from August 1999 forward. It is true that

when the parties have established, by their contract, a rule for

applying payments, that rule must be given effect to the

exclusion of any other. (Harrison v. Woodward(1909) 11

Cal.App. 15, 22.) There is nothing in the Note or the Deed of

Trust, however, that specifies how subsequent monthly payments

are to be treated when an earlier monthly payment was missed or

that allowed EMC to ignore a designation made by Anolik. As we

have noted, paragraph 3 of the Deed of Trust specifies that any

payment of principal and interest has to be applied first, to

any prepayment charges due under the Note; second, to amounts

payable [to an impound account]; third, to interest due; fourth,

to principal due; and last, to any late charges due under the

Note. This provision does not authorize EMC to treat a monthly

installment payment of principal and interest designated for a

particular month as a payment for the previous month. Thus, the

assertion in the Notice of Default that Anolik failed to pay


03/01/2000 AND ALL SUBSEQUENT INSTALLMENTS did not accurately

describe Anoliks breach of his obligations under the Note and

the Deed of Trust.

Nothing in Hammond Lumber Co. v. Henry(1927) 87 Cal.App.

231 compels a different conclusion. In Hammond, the defendant


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was a general contractor and builder, engaged in the

construction of a number of houses in and near Los Angeles, and

had bought a great deal of building material at different times,

such as lumber, cement, lime, etc., from the [plaintiff], and

. . . it was the custom of [the parties] to keep a separate

account for each building. (Id. at p. 233.) On appeal, the

defendant, relying on section 1479, complained that certain

payments made by him to [the plaintiff] were not credited as he

directed. ( Hammond Lumber Co., at p. 234.) The appellate

court concluded section 1479 did not apply for the reason that

the [defendant] Henry was indebted to the [plaintiff] Hammond

Lumber Company, on but one obligation for lumber and building

material of all kinds sold and delivered to him, and not upon

several obligations. The accounts were kept separate merely for

convenience and constituted one debt which Henry was primarily

obligated to pay. ( Hammond Lumber Co., at p. 235.)

Because Hammond Lumber Companydid not involve monthly

installment payments, it is of no assistance here. Instead,

Smith v. Renz controls. Under Smith, Anolik was entitled to

designate which installment he was paying in August 1999 and

every month thereafter, and EMC had no authority to ignore that

designation. Thus, contrary to EMCs assertion in the Notice of

Default, Anolik made the monthly loan payments due from March

2000 through June 2000.

EMCs refusal to accept the loan payments Anolik tendered

in May and June based on the contention they were insufficient

to cure the default amount does not change this conclusion. It


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is true Anolik was in default for failing to make one of his

prior monthly loan payments and for failing to pay the taxes due

in October 1999. EMC points to nothing in the Note or the Deed

of Trust, however, that authorized it to refuse an otherwise

properly tendered monthly loan payment on the ground the payment

was insufficient to cure the existing default, then claim a

further default because of the purported failure to make the

monthly payment EMC refused to accept. Thus, on the facts of

this case, EMCs assertion in the Notice of Default that payment

had not been made of the installments of principal and interest

that became due between March 1, 2000 and June 1, 2000 was

incorrect.

We do not conclude that Anolik was not in breach of his

obligations to EMC; he admittedly was. As we have noted,

however, foreclosure is a drastic sanction and a draconian

remedy (Baypoint Mortgage Corp. v. Crest Premium Real Estate

etc. Trust, supra, 168 Cal.App.3d at pp. 827, 830), and

accordingly [t]he statutory requirements [of section 2924] must

be strictly complied with (Miller v. Cote, supra, 127

Cal.App.3d at p. 894). A person seeking to exercise the power

of sale in a deed of trust must slavishly adhere to the

procedural requirements of the law governing nonjudicial

foreclosures, and a trustees sale based on a statutorily

deficient notice of default is invalid. (Ibid.)

Because Anolik paid the monthly loan payments due in March,

April, May, and June 2000, and because his failure to pay the

July 2000 payment by the fifth of July did not constitute a


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sufficiently substantial breach of his obligations to allow EMC

to declare a default, EMCs Notice of Default did not contain a

correct statement of any breach of an obligation for which EMC

was entitled to begin foreclosure proceedings. Thus, the Notice

of Default was invalid. The trial court erred in concluding

otherwise.

III

Failure To Address Application Of

Fair Debt Collection Practices Act

In the cause of action for breach of the covenant of good

faith and fair dealing in his second amended complaint, Anolik

alleged that EMC had breached the covenant by knowingly making

false allegations of default in the Notice of Default, by

refusing to accept the monthly loan payments for May and June

2000, and by pursuing a nonjudicial foreclosure sale of his

home.

On the last day of trial, following the close of evidence,

Anolik argued that various other actions by EMC that he

contended were in violation of the Fair Debt Collection

Practices Act should be considered breaches of the covenant of

good faith and fair dealing. The trial court questioned whether

there was any evidence of a causal connection between those

actions and any damages to Anolik.

Anolik subsequently filed a request for a statement of

decision. Among other issues, Anolik requested that the courts

statement of decision address [w]hether the Fair Debt

Collection Practices Act governs or applies to the actions of


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[EMC] in collecting sums allegedly due from . . . Anolik on

account of . . . Anoliks loan; [w]hether [EMCs] demand

letters were in compliance with the requirements of the Fair

Debt Collection Practices Act; [w]hether [EMCs] returned

check notifications for May, 2000, and June, 2000, were in

compliance with the requirements of the Fair Debt Collection

Practices Act; [w]hether [EMC], by maintaining their

foreclosure sale process after August, 2000, violated the

limitations and requirements of the Fair Debt Collection

Practices Act; and [w]hether [EMC], by failing to comply with

the requirements of the Fair Debt Collection Practices Act in

attempting to collect money from . . . Anolik, breached the

covenant of good faith and fair dealing.

Following receipt of Anoliks request, the court directed

EMC to prepare a proposed statement of decision. EMC apparently

did so, even though no copy of the proposed statement of

decision appears in the file, because Anolik filed objections to

EMCs proposed statement of decision. Among other objections,

Anolik objected because the proposed statement of decision did

not address the issues he had raised regarding the Fair Debt

Collection Practices Act.

The statement of decision the trial court ultimately

entered did not specifically address any issue regarding the

Fair Debt Collection Practices Act. The trial court did,

however, address Anoliks cause of action for breach of the

covenant of good faith and fair dealing, as follows: Anolik

contends that several letters sent by agents of EMC evidence


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EMCs bad faith state of mind and conduct. Missing from

[Anoliks] showing was a causal connection between the alleged

breach and the claimed damages. The only damages claimed by

Anolik in this case arise out of his inability to obtain

alternative financing or refinancing for his Property and an

inability to lease a suitable new location for his commercial

business. . . . [N]o damages were proven. Anolik failed

completely to present any evidence on the causation issue in

that there was no evidence to show that any conduct of [EMC],

much less the several letters, had any appreciable effect on

Anoliks ability to obtain other loans or to lease a commercial

property. [Anolik] failed to prove the elements of his 6th

Cause of Action.

On appeal, Anolik contends the trial courts failure to

address any of the issues relating to the Fair Debt Collection

Practices Act in its statement of decision was error. He offers

no authority to support that argument, however. Instead, he

spends several pages of his brief purporting to explain why the

Fair Debt Collection Practices Act applied to EMCs actions,

then contends that EMCs actions in this regard are cognizable

under the covenant of good faith and fair dealing.

In its brief, EMC emphasizes the trial courts finding that

Anolik failed to prove the causation and damages needed to

prevail on his cause of action for breach of the covenant of

good faith and fair dealing.

In his reply brief, Anolik ignores his failure to prove

causation and damages and continues to insist the trial court


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erred by failing to address any of the issues relating to the

Fair Debt Collection Practices Act in its statement of decision.

Anolik has failed to carry his burden of showing error.

(See In re Marriage of Gray(2002) 103 Cal.App.4th 974, 978 [It

is the appellants burden to affirmatively demonstrate error].)

Under Code of Civil Procedure section 632, the trial courts

obligation was to issue a statement of decision explaining the

factual and legal basis for its decision as to each of the

principal controverted issues at trial. More importantly,

however, [i]t is an established rule of appellate procedure

that if there is a finding of fact that is dispositive and

necessarily controls the judgment, the presence or absence of

findings on other issues is inconsequential. In other words,

sometimes a single finding is all that is really important.

(Alpine Ins. Co. v. Planchon (1999) 72 Cal.App.4th 1316, 1320.)

Here, the trial court expressly found that no damages were

proven and Anolik failed completely to present any evidence on

the causation issue. Anolik has not challenged these findings.

Given Anoliks failure to prove causation and damages, no

findings were necessary on whether any of EMCs actions violated

the Fair Debt Collection Practices Act or whether they

constituted breaches of the covenant of good faith and fair

dealing. If findings are made upon issues which determine a

cause, other issues become immaterial, and a failure to find

thereon does not constitute prejudicial error. (Leonard v.

Fallas (1959) 51 Cal.2d 649, 653.)


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IV

Conclusion

Because the Notice of Default was invalid, the judgment

must be reversed. Anolik was entitled to judgment in his favor

on his fourth cause of action for wrongful foreclosure, in which

he sought a judgment of this court determining that the Notice

of Default . . . and all further proceedings taken thereon, are

null and void and of no force and effect. He also was entitled

to a permanent injunction on his first cause of action enjoining

EMC from proceeding with nonjudicial foreclosure based on the

invalid Notice of Default. Of course, EMC is not precluded from

recording a new notice of default and proceeding with a

nonjudicial foreclosure based on new, accurate assertions of

default by Anolik, if he remains in default.

Since it is not clear whether the trial court would have

found against Anolik on his fifth cause of action for damages

for wrongful foreclosure if the court had found the Notice of

Default was invalid, our decision may effect that cause of

action as well, but that is for the trial court to decide on

remand.

Finally, because we are reversing the judgment in favor of

EMC, we must also reverse the order awarding EMC its attorney

fees, which was premised on EMCs being the prevailing party in

seeking to enforce the Note and the Deed of Trust.

DISPOSITION

The judgment and the order awarding attorney fees to EMC

are reversed, and the case is remanded to the trial court for


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further proceedings consistent with this opinion. Anolik shall

recover his costs on appeal. (Cal. Rules of Court, rule 27(a).)

ROBIE , J.

We concur:

MORRISON , Acting P.J.

HULL , J.

CALIFORNIA APPEAL DECISION Anolik_vs_EMC - THE NOTICE OF DEFAULT IS VOID IF THE TERM 'IF ANY' IS...

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